Quotation Frey, Rüdiger. 1998. Perfect Option Hedging for a Large Trader. Finance and Stochastics, 2, (2), 115-141.


RIS


BibTeX

Abstract

Standard derivative pricing theory is based on the assumption of agents acting as price takers on the market for the underlying asset. We relax this hypothesis and study if and how a large agent whose trades move prices can replicate the payoff of a derivative security. Our analysis extends prior work of Jarrow to economies with continuous security trading. We characterize the solution to the hedge problem in terms of a nonlinear partial differential equation and provide results on existence and uniqueness of this equation. Simulations are used to compare the hedging strategies in our model to standard Black-Scholes strategies.

Tags

Press 'enter' for creating the tag

Publication's profile

Status of publication Published
Affiliation WU
Type of publication Journal article
Journal Finance and Stochastics
Citation Index SSCI
WU Journalrating 2009 A
WU-Journal-Rating new FIN-A, STRAT-B, VW-B, WH-B
Language English
Title Perfect Option Hedging for a Large Trader
Volume 2
Number 2
Year 1998
Page from 115
Page to 141
URL http://www.math.ethz.ch/~finasto/
DOI http://dx.doi.org/10.1007/s007800050035
Open Access N

Associations

People
Frey, Rüdiger (Details)
Organization
Institute for Statistics and Mathematics IN (Details)
Google Scholar: Search